Modvat credit on components of capital goods allowed where the fabricated item qualifies under the excise rules.

Steel plates used as components in fabricating a pickling bath were eligible for Modvat credit because the fabricated pickling bath itself qualified as capital goods under Rule 57Q of the Central Excise Rules, 1944, falling under Tariff Heading 84.19. Once the end-product satisfied the capital goods definition, the materials used as its components also qualified for credit under Rules 57T and 57Q, absent any separate disqualifying ground. The principle stated is that credit follows component materials used in manufacture of an item recognised as capital goods, unless a specific bar is established.

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Issues: Whether Modvat credit was admissible on steel plates used as components in the manufacture of a pickling bath, when the pickling bath itself fell within the category of capital goods under the relevant rules.

Analysis: The dispute concerned credit taken on steel plates used to fabricate a pickling bath. The relevant definition of capital goods under Rule 57Q of the Central Excise Rules, 1944 covered goods falling under Tariff Heading 84.19, and the pickling bath manufactured from the steel plates was found to fall under that heading. Once the end-product qualified as capital goods, the steel plates used as its components also qualified for Modvat credit under Rules 57T and 57Q. No other independent ground was shown to deny the credit.

Conclusion: Modvat credit was admissible and the issue was decided in favour of the assessee.

Ratio Decidendi: Where a fabricated item qualifies as capital goods under the applicable excise rules, credit is available on the materials used as its components if no separate disqualifying ground is established.

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